The Bankrupt Companies: Where Are They Now?

RHK :: Some of the earliest bankruptcies are beginning to gain reorganization approval from their bondholders, notably ICG Communications, McLeodUSA, and Global Crossing. However, the company valuations are extremely low. For example, in July Global Crossing announced that Hutchison Whampoa would be bailing it out at a cost of $250 million ($0.02 on the dollar for Global Crossing’s $12 billion in PP&E). This price was much lower than earlier offers from Hutchison Whampoa (which offered $750 million in spring 2002 for about 79% of the company) and others, and lower than Global Crossing hoped to achieve with its $4 billion annual revenue.

The reasons telecom assets are being highly discounted are: the large number of companies available for sale; the aging technology of the networks; and the difficulty of integrating networks built with different equipment. Other bankrupt carriers are likely to be plagued by similarly low valuations. In these deals, equity shareholders are being totally wiped out, significant sums of debt are being forgiven (60-90% in recent cases), and new investors are almost guaranteed a nice profit due to the low cost of gaining ownership. The likelihood of these financial returns has lured savvy investors such as Warren Buffett into the industry.